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Can Discount Window Stigma Be Cured? An Experimental Investigation

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Abstract

A core responsibility of a central bank is to ensure financial stability by acting as the “lender of last resort” through its Discount Window. The Discount Window, however, has not been effective because its usage is stigmatized. In this paper, we study experimentally how such stigma can be cured. We find that, once a Discount Window facility is stigmatized, removing stigma is difficult. This result is consistent with the Federal Reserve’s experiences which have been unsuccessful at removing the stigma associated with its Discount Window.

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  • Olivier Armantier & Charles Holt, 2024. "Can Discount Window Stigma Be Cured? An Experimental Investigation," Staff Reports 1103, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:98224
    DOI: 10.59576/sr.1103
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    Keywords

    lender-of-last-resort (LOLR); Lender of last resort; discount window; stigma; laboratory experiments;
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    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior

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